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Qantas to cut 5,000 jobs, posts $211 million loss

By ROD McGUIRK Associated Press

Updated:
02/26/2014 11:48:46 PM EST

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Qantas chief executive Alan Joyce announces a first-half loss of 235 million Australian dollars ($211 million) during a press conference in Sydney, Thursday, Feb. 27, 2014. The Australian flag carrier said the 5,000 jobs would be cut as part of its bid to cut AU$2 billion in costs over three years.

CANBERRA, Australia—Qantas Airways on Thursday said it will cut 5,000 jobs and posted a first-half loss of 235 million Australian dollars ($211 million) amid tougher competition, sending its shares down more than 7 percent.

The loss for the six months through December 2013 followed an AU$111 million ($114 million) profit for the same period a year earlier. The loss excluding one-time factors was AU$252 million. The airline has struggled on international routes and its dominance on Australian domestic routes has been eroded.

The Australian flag carrier said the 5,000 jobs would be cut as part of plans to reduce costs by AU$2 billion over three years. The job cuts amount to just under one sixth of Qantas' workforce of 32,000.

Qantas Airways Ltd. chief executive Alan Joyce said the Qantas fleet would be reduced from 11 to seven aircraft types, and wages would be frozen until the airline made a profit. He would discuss the job cuts with unions on Friday.

Australia had been "hit by a giant wave of international airline capacity," with a 46 percent increase in passenger seats since 2009, more than double the global increase of 21 percent in the same period, he said.

"We are facing the toughest conditions Qantas has ever seen," Joyce said. "This performance by our airlines is unacceptable and the current position is unsustainable," he said, referring to Qantas and its Jetstar Group subsidiary.

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The Australian government is considering reducing foreign ownership restrictions legislated in 1992 before the state-owned airline was privatized, which would allow the airline to receive a cash infusion by bringing in a new investor or investors.

The government has also discussed with Qantas providing a standby debt facility backed by a government guarantee, for which Qantas would pay a fee.

Qantas argues that the 49 percent cap on foreign ownership, 35 percent limit on ownership by foreign airlines and 25 percent cap on ownership by any single foreign investor put it at a disadvantage against state-owned competitors in raising capital.

Prime Minister Tony Abbott said the government was determined to create a level playing field for the airlines.

"We want to ensure that Qantas is not competing against its rivals with a ball and chain around its leg," Abbott told Parliament.

State-owned Air New Zealand, which has 24.5 percent stake in Qantas' major rival Virgin Australia, posted a record half-year profit of 140 million New Zealand dollars ($116 million) on Thursday.

That result was a 40 percent improvement on the same period a year earlier, and came despite a 1.6 percent fall in revenue to NZ$2.3 billion.

Joyce put much of the blame for the poor Qantas result on an "uneven playing field" with Virgin Australia, which is 64 percent owned by three state-owned carriers Air New Zealand, Etihad Airways and Singapore Airlines.

"The Australian domestic market has been distorted by current Australian aviation policy," he said.

"Late last year, these three foreign airline shareholders invested more than AU$300 million in Virgin Australia. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses," he said.

Qantas warned in December that its loss could be as high as AU$300 million and that 1,000 jobs would be shed. That warning led to Qantas debt being downgraded from investment grade to junk.

Qantas shares were among the worst performers on the Australian stock market Thursday, falling 7.1 percent to AU$1.18 by 0235 GMT.

Tony Webber, a Sydney University economist who until 2011 was chief economist at Qantas, said the airline's international business "seems beyond repair."

"The domestic business and the regional business is still an exceptional business. It will make money eventually, it's just in a cyclical downturn," Webber told Australian Broadcasting Corp. radio.

Webber was critical of Joyce's strategy of attempting to maintain Qantas' 65 percent share of the Australian domestic market by expanding the number of Qantas seats on offer faster than Virgin.